The Financial Conduct Authority has taken enforcement action on a number of occasions recently relating to unsuitable pension transfer advice. However, its latest action in this area is of a slightly different nature, as the firm in question has entered liquidation and the usual enforcement process may therefore be less appropriate.
The FCA is, however, anxious that the firm does not escape sanction for what is described as “unsuitable defined benefit pension transfer advice, leading consumers to exit defined benefit pension schemes when it was not in their best interests to do so”.
Accordingly, the regulator has commenced civil proceedings in the High Court against two individuals, who are said to be in a relationship as well as having done business together in the past. The Court has granted an interim injunction which freezes the assets of the couple up to the value of £7 million, pending a further hearing.
One of the individuals was the director and co-owner of the firm which is alleged to have given the inappropriate transfer advice, and the FCA says that he was “knowingly concerned” when the firm gave that advice to its clients.
The FCA also alleges that he removed assets from the firm. As a result of him doing so, the firm was unable to meet its potential liabilities for unsuitable advice, while the director was able to retain the significant profits that accrued from the advice given by the firm.
His partner was included in the injunction on the basis that she may be holding or controlling assets owned by the firm’s former director and co-owner.
The FCA is now asking the Court to make a restitution order. Should this application be successful, the director and co-owner will be required to compensate consumers who have suffered losses as a result of his firm’s unsuitable pension transfer advice.
The FCA has made it clear on numerous occasions that it believes transferring out of a defined benefit (final salary) scheme will only be suitable for a minority of clients. Advisers must conduct a detailed analysis of the client’s circumstances before recommending a transfer.
Advisers cannot use a fee-charging model under which they will only receive an advice fee if the transfer out of the occupational scheme goes ahead. Advisers must charge the same monetary amount for advice to transfer as for advice not to transfer.
The FCA says that 2,426 firms gave advice on pension transfers between April 2015 and September 2018 and that this figure reduced to 1,310 for the period October 2018 to March 2020, so it appears that its regulatory oversight of this area is having a visible effect.